ANZ pays 10% in Dividends, page-38

Perhaps ANZ can fudge their way through the next 5-8 yrs? Until we get more detail its all speculation, but did some 'back of the envelope' figures and wonder if this 'solution' will work? Afterall, doing nothing is not an option.

ANZ loan book to energy sector aprox 9B.
ANZ exposure to Asia 35-40B.

How can they get through the tough period ahead as commodity crash continues and China's economy takes 5+ yrs to adjust to end of construction boom?

When its all said and done, energy loans probably only good for 10c in the dollar but lets double that. i.e. bank takes hit of 7.2B. Spread across 3 yrs its 2.4B/annum and quite manageable.

Its probably fair that only 50% of loans to Asia will be recouped. That's a hit of say 18B and ANZ can't manage something this size. So starting FY17 rather than declare the loans as non-performing/bad debt writeoff... ANZ simply reduces the loan interest rate to zero. This way it doesn't appear the loans are dicey/non-performing as there are no interest payments missing.

Instead bank quietly writes-off the 18B across 9 yrs = 2B/annum. Once again its not very palatable but prevents alarm and despondency in the market/general public.

So how does ANZ cope with hits of 2.4B in fy17, 4.4B fy18, 4.4B fy19, and just 2B for each of remaining 7 yrs? I'd suggest a CR of 5B asap under the auspices of tighter/tougher regulations. Then cut div by 25% in fy17, another 25% in fy18 and then pay divs of say 90-100c for the duration outlined above.

Bank stays viable, institutions keep quiet for fear other banks do something similar, govt def won't say a word also out of fear, and retail shareholders will be left with reduced income stream and probably 30% less branches on the ground. But everyone feels 'phew... we got through that ok.' No bank bankruptcies ala USA, no govt bailout ala UK although Oz govt will re-assure public of the govt guarantor re deposits.

What about SP? If CR done soon they could get it through at $22.40. Dilution and concern re world economy will slowly drag SP down to $18. But $1.00 div at new SP equates to 7.9% gross yield i.e. not quite the 10% as in thread title, but still better than most stks. Hence, punters are satisfied and life goes on. Whats there to worry about?